Microsoft’s fiscal second quarter beat consensus on both revenue and earnings per share, yet the company suffered its largest single-session market value drop since early 2020. Shares slid roughly 12% the day after the release, erasing an estimated $357 billion in market capitalization. Despite beating Wall Street’s topline and bottom-line forecasts, investors focused on signs of slowing momentum in key growth drivers, sparking an unusually sharp sell-off in the world’s largest software company.

Azure revenue grew 38% year-over-year, meeting but not exceeding analyst expectations, and decelerating from the prior quarter’s pace. At the same time, capital expenditures surged 66% to $37.5 billion, driven largely by AI infrastructure build-out. Management noted that GPU capacity constraints have limited growth, yet the disparity between heavy spending and flat growth rates heightened concerns that AI investments are not yet translating into revenue acceleration.

Commercial bookings jumped 228% year-over-year, boosting the remaining performance obligation backlog to $625 billion with an average duration of 2.5 years. Approximately one-quarter of that backlog is slated for recognition as revenue over the next 12 months, implying roughly 39% top-line growth from existing contracts. Reflecting these fundamentals, Wall Street maintains a consensus buy rating, with the median analyst target suggesting nearly 47% upside over the next year despite near-term volatility.